US is an economic gargantuan who's fall may pull many other nations down with it. Closer a nation is to the US center of gravity, the more vulnerable it may be if and when the US suffers a total economic collapse. As a result, we have major foreign powers looking to make sure this does not happen. The US is like a dangerous junkie that is being administered a steady dose of narcotics to help it stay calm and not hurt anyone. The US is like a potentially destructive giant on dialysis and under constant watch. How long will this situation last?
The more we look into the problems the US is facing today the more we will realize that not much can be done to retard its inevitable decline - other than selling the nation to the highest bidder. The US is facing longterm and profound problems. So let's not be surprised if talk about the North American Union gains momentum as a result of the current economic crisis. The North American Union, combining Mexico and Canada and the US, may be proposed as an attempt to remedy America's longterm problems.
Regarding the lasting effects of America's economic woes upon other nation: In my opinion, nations like India, Russia, China, Japan, Germany will be able to recover due to their powerful industrial base. China will continue being an industrial powerhouse; Japan and Germany will continue to be innovative and will continue hosting a technically capable work force; Russia will continue its exploitation of Eurasian's vast natural resources. While the whole US economy falters the only serious problem the aforementioned nations will have is in their stock markets and perhaps their exports, most of which is consumed by the US and western Europe. The world economy will suffer greatly, some may hurt even more than the US, but others are poised today to takeover control of whatever the US leaves behind.
Further perspective: At the turn of the 20th century the world faced a multipolar political reality where major political entities like France, United States, Austria-Hungary, Germany, Japan, Russian Empire, United Kingdom and the Ottoman Empire often competed against one another - without a single entity being all powerful. This geopolitical diversity was somewhat abated as a result of the First World War. Some years later, Germany's and Japan's defeat created in essence a bipolar world at the end of the Second World War. Consequently, during the Cold War, we had the Soviet Union on one side and the Western world (led by the US) on the other. Since the sudden collapse of the Soviet Union, its been a unipolar world, a world where the US has been the undisputed military, economic, political and cultural superpower. The US is proving today that being on the top may indeed be a lonely and risky place. The US is so large, so powerful, so intertwined within the global economy that nations worldwide are afraid of its fall. But how long can the US continue surviving on top while being administered by lesser nations below?
Historical note: The British Empire faced a similar situation the US is in today at the turn of the last century. The Empire was overextended, its population overly complacent and its economy seriously lagged behind in various strategic sectors. What did the British do? They essentially handed over their vast empire to the United States (along with its inherent flaws) and they drastically downsized. This is essentially why there still is a nation called Britain today. Had they been stubborn, arrogant and shortsighted they would have simply disappeared into the pages of history as a result of the two world wars. So, what should be done? The financial/political elite in this country should give up the empire, tighten its belt and drastically downsize. But will they do so? Knowing Washington well, I would not hold my breath.
America Will Collapse: http://www.youtube.com/watch?v=NmTBnhOXufg&feature=channel_page
Ron Paul: Why Do We Run A World Empire! http://www.youtube.com/watch?v=HUQo5QQSlys&NR=1
Interview with Ron Paul: http://www.youtube.com/watch?v=6C756...e=channel_page
Federal Reserve policy makers in January estimated U.S. long-term growth potential at 2.5 percent to 2.7 percent, with an unemployment rate of 4.8 percent to 5 percent, a level that will be exceeded for at least four years, according to the Bloomberg survey. The jobless rate averaged 5.8 percent in 2008 and 4.6 percent in 2007. Fed Chairman Ben S. Bernanke, responding to a question after a speech today in Washington, said a 10 percent jobless rate is “well within the realm of possibility.” The world’s largest economy will shrink 2.5 percent this year, the most since 1946, and expand 1.8 percent next year, according to the survey median. Both figures were lower than estimated last month. As unemployment rises, more Americans won’t be able to make mortgage or car payments, choking off growth and leading to even higher joblessness, said David Rosenberg, chief North American economist at Banc of America Securities - Merrill Lynch in New York, who projected the jobless rate would reach 10 percent by the end of the year.
“We are really in a vicious cycle,” he said. “This problem requires a massive positive shock to aggregate demand. The fiscal package as it is constructed falls short on that score.” Stimulus “has to be a lot bolder that what we have seen right now.” Rosenberg proposed the federal government give a $1 trillion interest-free loan to state and local governments, which account for 13 percent of the economy and employ about 20 million people. “This comes down to the heart and soul, the fabric, of the national economy -- cops, teachers, school custodians, firefighters, highway construction workers,” he said. While estimates for overall growth weakened, projections for consumer spending improved. Purchases, which account for 70 percent of the economy, will fall at a 1.7 percent pace this quarter, less than the 2.7 percent slump predicted last month. Economists also pared the projected decline for next quarter.
Discounters such as Wal-Mart Stores Inc., the world’s largest retailer, are benefiting. Bentonville, Arkansas-based Wal-Mart last week said sales at stores open at least a year rose 5.1 percent in February as customers sought its lower prices on gasoline, groceries and electronics. Same-store sales fell at companies ranging from department- store chains Macy’s Inc. and J.C. Penney Co. to luxury retailers Neiman Marcus Group Inc. and Saks Inc. AnnTaylor Stores Corp., whose main clientele is working women, said same-store sales dropped 24 percent in the quarter ended Jan. 31. “The financial crisis and rising unemployment” especially hurt the company, Chief Executive Officer Kay Krill said in a statement last week. She also cited “extremely weak macroeconomic fundamentals, including historically low consumer confidence and a broad-based decline in consumer spending.” Steps to stem the slump in growth and unclog credit markets will bust the budget. Economists anticipate the federal deficit will equal almost 12 percent of GDP this year, more than doubling last year’s 5.8 percent share.
The efforts may still fall short, resulting in “a very anemic recovery that will deliver very few jobs,” said Robert Carnell, chief international economist at ING Wholesale Banking in London. He predicts the jobless rate may keep rising into 2011. “The unemployment rate will tick up slowly but surely,” Carnell said. “People coming into the labor force looking for a job will find it very difficult.”Companies have been paring staff further in recent weeks. Dow Chemical Co. yesterday said it’ll eliminate 3,500 workers following its merger with Rohm & Haas Co. General Motors Corp. will cut 47,000 more positions globally, and FedEx Corp., the second-largest U.S. package-delivery firm, is axing 900 jobs in addition to more than 1,100 positions pared late last year. The Bloomberg survey also shows that the cumulative peak-to- trough drop in GDP during this recession will likely be 3.6 percent, making it the second-worst slump in the postwar era, according to the median forecast of 20 economists who answered that special question. The cumulative decline was 3.75 percent during the 1957-1958 recession.
America's Fiscal Collapse: http://aud1.kpfa.org/data/20090311-Wed1300.mp3
"Strong economic medicine" with a "human face"
“Promise amid peril.” The stated priorities of the Obama economic package are health, education, renewable energy, investment in infrastructure and transportation. "Quality education" is at the forefront. Obama has also promised to "make health care more affordable and accessible", for every American. At first sight, the budget proposal has all the appearances of an expansionary program, a demand oriented "Second New Deal" geared towards creating employment, rebuilding shattered social programs and reviving the real economy. The realities are otherwise. Obama's promise is based on a mammoth austerity program. The entire fiscal structure is shattered, turned upside down. To reach these stated objectives, a significant hike in public spending on social programs (health, education, housing, social security) would be required as well as the implementation of a large scale public investment program. Major shifts in the composition of public expenditure would also be required: i.e. a move out of a war economy, requiring a movement out of military related spending in favour of civilian programs.
In actuality, what we are dealing with is the most drastic curtailment in public spending in American history, leading to social havoc and the potential impoverishment of millions of people. The Obama promise largely serves the interests of Wall Street, the defence contractors and the oil conglomerates. In turn, the Bush-Obama bank "bailouts" are leading America into a spiralling public debt crisis. The economic and social dislocations are potentially devastating. Obama's budget submitted to Congress on February 26, 2009 envisages outlays for the 2010 fiscal year (commencing October 1st 2009) of $3.94 trillion, an increase of 32 percent. Total government revenues for the 2010 fiscal year, according to preliminary estimates by the Bureau of Budget, are of the order of $2.381 trillion. The predicted budget deficit (according to the president's speech) is of the order of $1.75 trillion, almost 12 percent of the U.S. Gross Domestic Product.
War and Wall Street
This is a "War Budget". The austerity measures hit all major federal spending programs with the exception of: 1. Defence and the Middle East War: 2. the Wall Street bank bailout, 3. Interest payments on a staggering public debt. The budget diverts tax revenues into financing the war. It legitimizes the fraudulent transfers of tax dollars to the financial elites under the "bank bailouts". The pattern of deficit spending is not expansionary. We are not dealing with a Keynesian style deficit, which stimulates investment and consumer demand, leading to an expansion of production and employment.
The "bank bailouts" (involving several initiatives financed by tax dollars) constitute a component of government expenditure. Both the Bush and Obama bank bailouts are hand outs to major financial institutions. They do not not constitute a positive spending injection into the real economy. Quite the opposite. The bailouts contribute to financing the restructuring of the banking system leading to a massive concentration of wealth and centralization of banking power. A large part of the bailout money granted by the Us government will be transferred electronically to various affiliated accounts including the hedge funds. The largest banks in the US will also use this windfall cash to buy out their weaker competitors, thereby consolidating their position. The tendency, therefore, is towards a new wave of corporate buyouts, mergers and acquisitions in the financial services industry.
In turn, the financial elites will use these large amounts of liquid assets (paper wealth), together with the hundreds of billions acquired through speculative trade, to buy out real economy corporations (airlines, the automobile industry, Telecoms, media, etc ), whose quoted value on the stock markets has tumbled. In essence, a budget deficit ( combined with massive cuts in social programs) is required to fund the handouts to the banks as well as finance defence spending and the military surge in the Middle East war. Obama's budget envisages:
1. Defense spending of $534 billion for 2010, a supplemental 130 billion dollar appropriation for fiscal 2010 for the wars in Afghanistan and Iraq, and a supplemental $75.5 billion emergency war funding for the rest of the 2009 fiscal year. Defence spending and the Middle East war, with various supplemental budgets, is (officially) of the order of 739.5 billion. Some estimates place aggregate defence and military related spending at $ 1 trillion+.
2. A bank bailout of the order of $750 billion announced by Obama, which is added on to the 700 billion dollar bailout money already allocated by the outgoing Bush administration under the Troubled Assets Relief Program (TARP). The total of both programs is a staggering 1.45 trillion dollars to be financed by the Treasury. It should be understood that the actual amount of cash financial "aid" to the banks is significantly larger than $1.45 trillion. (See Table 2 below).
3. Net Interest on the outstanding public debt is estimated by the Bureau of the Budget) at $164 billion in 2010.
The U.S. Economy: Designed to Fail
“What began as a crisis in finance markets has rapidly become a global jobs crisis. Unemployment is rising. The number of working poor is increasing. Businesses are going under.”
President Obama’s speech was long on resolve but short on substance. He assured the nation: “We will rebuild, we will recover, and the United States of America will emerge stronger than before.”
But accomplishing this depends entirely on one thing: more federal deficit spending to serve as the economic engine in an economy where bank lending has dried up because businesses and consumers can no longer repay their loans. Unfortunately, the deficit is approaching the breaking point.
During fiscal year 2009 the U.S. Treasury is on-track to pay over $500 billion just in interest payments to finance the already-existing debt. New debt this year will likely exceed a trillion dollars. The total debt burden on the economy as a whole could reach $70 trillion by 2010, with annual interest payments for individuals, households, businesses, and all levels of government likely to reach $3 trillion out of a $14 trillion GDP that is now in sharp decline. Financing the deficit continues to depend on whether China will still purchase Treasury bonds. This is why Secretary of State Hillary Clinton said frankly during last week’s trip to China : “We are relying on the Chinese government to continue to buy our debt.”
But at least President Obama is trying. He knows the economy can only recover if growth is rekindled. So he is focusing on the creation of jobs that translate into real worker income. But can he reverse a generation of job outsourcing and income stagnation? I don’t know of anyone who believes he can. Will the Republican nostrum of tax and spending cuts do anything? You jest. Not when unemployment is approaching Great Depression levels. But neither President Obama, nor his Democratic supporters or Republican antagonists, should feel badly about what is happening. This is because the system they have been given to work with was designed to fail. The U.S. was saddled long ago with a debt-based monetary system, whereby the only way money can be introduced into circulation is through bank lending. It was the system that was instituted in 1913 when Congress gave away its constitutional power over money creation to the private banking industry by passing the Federal Reserve Act.
It was then that the catastrophe we are now facing became inevitable. It took nearly a century to get here but it finally happened. We should have known it was coming when Federal Reserve-created bubbles replaced economic growth from our disappearing heavy industry, starting with the recession of 1979-83. We could have seen it coming when the dot.com bubble collapsed in 2000-2001, and Fed Chairman Alan Greenspan worked with the George W. Bush administration to substitute the housing bubble for a real recovery. The day of reckoning is here. So don’t worry, Mr. President. It’s not your fault. When the collapse takes place the international bankers who will take over might even let you keep your job.